Preventing the Crowd-Out of Private Benefit Plans

Preventing the Crowd-Out of Private Benefit Plans

Abby McCloskey makes a good case for how Senator Rubio’s legislation would increase access to paid leave without new taxes or a costly mandate on businesses.

She laments, however, that the financing mechanism requires that workers would have to trade one government benefit (part of their Social Security retirement benefits) for the paid-leave benefit, suggesting that this would be an unfair and unnecessary hardship for those who take parental leave.

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First, it’s important to recognize that the offset required for each paid leave would be relatively modest. Someone who takes two months of parental leave benefits through Social Security would be eligible for full retirement benefits at about age 67 years and four months, rather than right at 67. Given the tremendous increases in life expectancy that have occurred in recent decades, this still leaves time for a long retirement (and stream of retirement-benefit payments) far longer than anyone would have anticipated at Social Security’s creation.

Just as importantly, requiring a trade-off also helps encourage employers to still offer their own leave benefits. If this was a true new entitlement program — in which everyone simply took a payment from government to finance two-months off anytime they gave birth or adopted a child — then employers would have much less reason to continue offering their own, separate paid-leave benefits.

The trade-off prevents much of this crowd-out of current employer benefits. As president of Independent Women’s Forum, I’m responsible for our organization’s budget and compensation packages. If Senator Rubio’s legislation became law, I wouldn’t change the parental-leave benefits that we currently offer, because I wouldn’t want my employees to have to give up any of their future retirement benefits. However, if a new entitlement was created — especially one with a new payroll tax then I would reconsider and likely eliminate or reduce the benefits that we offer today.

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This is a major selling point of this trade-off approach: We want employers to continue offering benefits and additional options for employees. We just also want to make sure that those who lack paid leave benefits don’t face severe financial hardship and end up on other forms of government support. That’s what Senator Rubio’s proposal does.

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